Tag Archives: GST on alcove products

Govt Takes Big Decision, ENA outside GST

  • Alcohol industry welcomes decision
  • Council recommends cut in GST on molasses from 28% to 5%

The 52nd GST Council which met under the Chairpersonship of Union Minister for Finance & Corporate Affairs, Nirmala Sitharaman on October 7th took a significant decision with regard to Goods and Services Tax (GST) rates which has a positive impact on the alcobev sector. It has recommended to keep Extra Neutral Alcohol (ENA) used for manufacture of alcoholic liquor for human consumption outside of GST. 

The GST Council recommendations will now be examined by the Law Committee on suitable amendment in law to exclude ENA for use in manufacture of alcoholic liquors for human consumption from the ambit of GST. The other recommendation is to reduce GST on molasses from 28% to 5%. This step will increase liquidity with mills and enable faster clearance of cane dues to sugarcane farmers. This will also lead to reduction in cost for manufacture of cattle feed as molasses is also an ingredient in its manufacture.

As per reports, a separate tariff HS code has been created at 8 digit level in the Customs Tariff Act to cover rectified spirit for industrial use. The GST rate notification will be amended to create an entry for ENA for industrial use attracting 18% GST.

It also clarified that job work services for processing of barley into malt attracts GST @ 5% as applicable to “job work in relation to food and food products” and not 18%.

The Council also made changes in GST rates on “Food preparation of millet flour in powder form, containing at least 70% millets by weight”, falling under HS 1901, with effect from date of notification, have been prescribed as: 0% if sold in other than pre-packaged and labelled form; and 5% if sold in pre-packaged and labelled form. 

Briefing the media, the Union Finance Minister Nirmala Sitharaman said, though by law, the GST Council had the right to tax ENA as established by the judgment of the Allahabad High Court, the Council has decided to cede those right to the States. The issues around the taxability of ENA has been under consideration since the implementation of GST in 2017. Several states had opposed and challenged the right of the GST Council in imposing taxes on ENA. The Allahabad High Court has issued a judgement in the favour of the GST Council. As per the judgement, the GST Council has the right to impose taxes on ENA, and not the states. “If the states want to tax it they are welcome, if they want to leave it as it is, they can.  In the interest of states, the centre has ceded that right to states,” Sitharaman said.

ISWAI welcomes recommendations

Mr. Suresh Menon, Secretary-General of the International Spirits and Wines Association of India (ISWAI) said, “Today’s decision by the GST Council to cede taxing control on un-denatured ethyl alcohol (commonly called Extra Neutral Alcohol or ENA) to the States is a major and very welcome step for the industry. It brings finality to an issue that has been hanging fire for the six plus years since GST came into being. The alcoholic spirits industry has been making the case for continuing to keep the taxation of this item within the taxing domain of the States, as had been the practice pre-GST. The possibility of an increase in taxes and hence in the cost of this essential ingredient in the manufacture of alcoholic spirits if ENA were to be taxed to GST, thereby pushing up the prices of the end alcoholic beverage, now falls away, and is very welcome. The industry is grateful to the members and the secretariat of the GST Council for this very critical decision for the sector. Likewise, also for the reduction in the rate of GST on molasses to 5% (from the current 28%), which should make for a level playing field for distillers of both grain and molasses (both integrated and standalone).”

CIABC thanks the Government for resolving long-standing demand

Welcoming the move, Mr. Vinod Giri, Director General of the Confederation of Indian Alcoholic Beverage Companies (CIABC) said, “We are very happy to see the GST Council give a definitive recommendation on the taxability of ENA used in making alcoholic beverages. ENA is nothing but high strength potable alcohol used as the primary ingredient for making alcoholic beverages after due dilution with water. 

Ideally, the industry would have liked all of alcohol including the finished products be under the GST to bring parity in taxation across states. However, we know there are complexities involved in that but as long as alcoholic beverages are kept outside GST, putting ENA under GST and leaving the industry with a stranded cost would have made little sense, especially as companies do not have the freedom to pass on this tax in most states.”

Mr. Giri added that in the absence of clarity from the GST Council, Courts had taken conflicting positions on the matter which had further compounded the uncertainties. 

“Industry has been pleading with the Council and other Government agencies involved for several years to bring finality on the matter. GST Council has also taken it up several times in its meetings but a definitive recommendation and closure had eluded. Considering that, the GST Council’s decision is a big relief to the industry. It will bring stability and settle nerves all over. “

He also mentioned that the CIABC had also recommended measures on related matters such as tax rate on molasses to bring a finality on the matter. “We are happy to see the Council recommend a comprehensive solution including reducing GST rate on molasses to 5% which should mitigate discomfort amongst the minority users buying molasses to make ENA.

On behalf of CIABC members and many other IMFL manufacturers, I thank the involved Governments and the Council for resolving a long-standing demand of the alcoholic beverages industry. We feel relieved.”

Allahabad High Court earlier had said ENA is subject to GST

Earlier the Allahabad High Court, in the case of Jain Distillery, held ENA is not covered under ‘alcoholic liquor for human consumption’ and is subject to GST.  The decision had opened a floodgate of questions for the manufacturers/suppliers of ENA across the country, who have been paying VAT/CST on the sale, and also the buyers, who have been availing credits of such VAT and setting it off against VAT payable on the sale of alcoholic beverages. 

The taxability of ENA has been the subject matter of deliberation for some years now. West Bengal has said the tax on potable liquor whose raw material comes from ENA must remain with the states; the ENA used for industrial purposes comes under GST, it said. Uttar Pradesh, where alcohol makes up more than 95 per cent of ENA, and other states such as Kerala, Tamil Nadu, Rajasthan, Telangana, Punjab, Madhya Pradesh, Chhattisgarh, and Karnataka wanted ENA to be kept out of GST.